Financial Advisers: Survey Says More High-Tech Services

The story, in 140 characters or less, is this: It's time for investment advisers to increase their technological capabilities.

As investors increasingly turn to social media and other forms of technology to learn about and discuss virtually all aspects of financial planning, wealth advisers--encumbered by regulations and entrenched in traditional strategies--are struggling to keep pace. According to a recent survey by Cisco's Internet Business Solutions Group, advisers' reluctance to make the plunge into high-tech services comes with a large price tag.

According to the report accompanying the survey, advisers are leaving millions of dollars on the table by not engaging with their clients' desire for new methods of communication. The use of technology, the survey found, could help with client recruitment and retention, which could in turn increase revenue by up to 19 percent for a financial advisory firm. "[We estimate] that for a firm with $200 billion in assets under management and approximately $1.8 billion in revenue, the overall opportunity could be as much as $341 million," the authors note.

[Read: Need Income From Your Retirement Funds? Try These.]

As part of the survey, Cisco interviewed wealthy investors and asked them their opinions about what they'd like to see from their financial advisers. One recurring theme highlighted by the survey is a desire among many investors to be able to communicate with their advisers via videoconference. Advisers, however, have tended to view videoconferencing with suspicion. "[M]any financial advisers are reluctant to use technologies such as video because they prefer the close relationships that face-to-face meetings engender, and because they feel in-person meetings give them more control over the client relationship," according to the report.

Wealthy investors have begun putting pressure on advisers by leveraging the most important tool they have: their ability to vote with their feet. Notably, 57 percent of wealthy U.S. investors under age 55 who were interviewed for the survey indicated a willingness to move money to firms that better meet their technological needs.

[Read: 5 Reasons to Consider Hiring a Financial Adviser.]

Apart from avoiding defection, another potential benefit is the ability to attract investors who do not currently use an adviser. In recent years, advisory services have had a difficult time making the case that their services are necessary. "The combination of poor market performance, availability of information, and low-cost business models that put the investor in control are calling into question the fundamental value proposition of wealth management firms and their financial advisers," the report observes. "Business models that incorporate video, social networking, and self-service can help bring ... wealthy investors into the fold, where some may eventually move into more traditional--and profitable--client-adviser relationships."

Financial advisers' reluctance to make the plunge isn't without reason. Particularly in the context of social media, compliance with applicable regulations can be a headache. Earlier this year, for instance, a Fidelity report found that 75 percent of advisers were "concerned that shifts in the regulatory and compliance environment will make their jobs more difficult."

"Time dedicated to managing regulatory issues, as well as concerns about compliance, may ... be keeping financial advisors from engaging in new communications techniques such as social media," Fidelity concluded. "Of financial advisors surveyed, only 12 percent used Facebook and 6 percent used Twitter for professional purposes."

[Read: Are Second Terms Good for Stocks?]

Such compliance, while daunting, is not impossible. As an example of a successful initiative, the Cisco report cited the efforts of Morgan Stanley Smith Barney, which has been letting its advisers speak--in limited capacities--to clients on Twitter and LinkedIn. Efforts like this come as a recognition that individuals are increasingly turning to Twitter and other social media outlets for information about investing. In the process, a number of specialized websites have emerged, presenting an even further threat to financial advisers. Investors who don't want to deal with the noise of Twitter, for instance, can turn to StockTwits, which is a Twitter-like service where people exclusively discuss investments. Other examples abound.

According to the Cisco report, it's time for wealth managers to play catchup. "[T]here is a mismatch between the demand and supply for technology-based interactions," the report notes. "This leaves large global wealth management firms vulnerable to client defection as other firms (especially direct investment services) fill the void."



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